Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 14, Problem 2NP
A
To determine
To describe:
With the given information, find the deposits, bank reserves, monetary base and the money multiplier.
B
To determine
To describe:
Supposing the given information and condition, find out the bank reserves, money supply and money multiplier.
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Students have asked these similar questions
The task I am struggling with:
Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%.
a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply?
b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit?
c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500?
Thank you very much for your help.
In the U.S., currency in circulation (C) is $1.2 trillion and the monetary base (B) is $3.7 trillion. Assume the reserve-deposit ratio (rr) and the currency-deposit ratio (cr) are both 0.25.
What is the size of bank reserves (R)? What is the money multiplier? What is the money supply? What is the velocity of money if nominal GDP is $17 trillion?
If the FOMC increases bank reserves (R) by $0.5 trillion and banks choose to hold all the additional reserves rather than loan them out, what is the new money supply? What is the new money supply if instead banks loan out 50% of the additional new reserves and households deposit all the additional loans?
Assume that the velocity of money is constant and real GDP is growing at 1%. Use the numbers in part (a) to answer the next question. If the Fed wishes to keep the price level constant, how much (in dollars) do they need to increase the money supply?
Your friend Sarah borrows money from her bank to buy a car. Explain to her the transactions in which the bank sets up the loan, and why the loan involves an increase in the money supply.
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Similar questions
- Total deposit collected by the banking system increases from 200 trillion to 260 trillion. Required reserve does not change and remains same which is 20 trillion. Find out the maximum change in money supply. Which of the tools of money supply IS NOT responsible for that change? Explainarrow_forwardThe central bank in a country released the following statistics. Total deposits in banks amounted to $ 500 million, notes and coins outside banks reached $ 100 million and reserves of banks held at the central bank amounted to $50 million. Use these figures to calculate the following: Calculate the quantity of money (the money supply) Calculate the monetary base Calculate currency drain ratio Calculate the reserve ratio Calculate the money multiplierarrow_forwardA bank has the following deposits and assets: Checkable deposits held by individuals and businesses, $380 Savings deposits held by individuals and businesses, $1,280 Small time deposits, $575 Loans to businesses, $1,809 Outstanding credit card balances, $300 Government securities, $125 Currency in the bank's vault, $1 Reserve account at the Fed, $8 Calculate the bank's total deposits, deposits that are part of M1, and deposits that are part of M2. The bank's total deposits are $ Deposits that are part of M1 are $ Deposits that are part of M2 are $arrow_forward
- In the economy of Waco, the monetary base is $3150. People hold 30% of their money in the form of currency (and thus 70% as bank deposits). Banks hold 15% of their deposits in reserve. What are the reserve‑deposit ratio, the currency‑deposit ratio, the money multiplier, and the money supply?arrow_forwardThe people in an economy have $20 million in money. Bank hold 1% of the deposits as reserves. What is the money multiplier in this economy?arrow_forwardMoney serves three functions in the economy: medium of exchange, unit of account, and store of value. Which of the following statements describes how inflation affects the ability of money to serve as a unit of account? Check all that apply. In some countries with hyperinflation, prices are posted in terms of U.S. dollars rather than the local currency, even though the local currency is still used to purchase the good. Inflation erodes money's purchasing power. Inflation causes menu costs.arrow_forward
- Money serves three functions in the economy: medium of exchange, unit of account, and store of value. Which of the following statements describes how inflation affects the ability of money to serve as a unit of account? Check all that apply. Inflation erodes money's purchasing power. In some countries with hyperinflation, prices are posted in terms of U.S. dollars rather than the local currency, even though the local currency is still used to purchase the good. Inflation causes menu costs.arrow_forwardWhich of the following component of money supply is most liquid? Checking accounts Savings accounts Retail money funds Small time depositsarrow_forwardThe Bank of Canada sets the reserve requirement, which banks must meet through deposits at the Bank of Canada and cash held at the bank. What do these requirements achieve? Check all that apply. They help to facilitate transfers of funds between banks when a customer from one bank writes a cheque to a customer of another. They help to control the money supply. They help to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash. They mean that a bank must have one dollar of deposits for every dollar it lends.arrow_forward
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